With 7% of the Medicare budget spent on dialysis for chronic kidney failure patients despite representing only 1% of the Medicare population, there is a compelling reason to seek innovative solutions.
The U.S. dialysis market is expected to grow 30% by 2030 as a result of an aging population coupled with increased rates of diabetes, hypertension, and obesity. That means more medical transport to dialysis centers, more equipment and seats needed at those centers, and more staff to provide care. This sets up innovative companies like Outset Medical (OM 3.85%) nicely.
With that as the backdrop, let's look at a trend on the upswing -- home-centered healthcare. If given the option, most patients probably would prefer not to stay in a hospital bed, let alone be hospitalized. And certainly, both Uncle Sam and insurance companies would prefer to avoid costly hospitalizations and transportation costs, not to mention the costs to the patient. This is likely the case for dialysis too. There are likely a number of patients that would prefer not to leave their homes for several hours a few times a week and instead receive dialysis treatment at home if at all possible. And as evidenced by the above chart, the number of patients undergoing home dialysis is growing.
Image source: Getty Images.
A blossoming niche market
As you can see, home dialysis is starting to take off, more than doubling from 2011 to 2019. Yet only 2% of dialysis patients are on home treatments. Outset Medical's Tablo dialysis system addresses key barriers to home dialysis adoption and retention. Compared to a traditional in-home dialysis system, Tablo users required fewer treatments per week (3 treatments versus 5 to 6 per week) and required next to no consumable prep time per week versus 16 to 24 hours of prep time per week for an at-home system. Plus traditional home systems require approximately 100 hours of patient training versus less than 25 hours for Tablo.
A more user-friendly system in a growing market sets the table well for years of growth for the up-and-coming healthcare company. Despite the company playing catch-up to industry giants Fresenius and DaVita, Outset Medical has a few advantages since its July 2020 home launch.
Most importantly, the Tablo system has received approval for the Transitional Add-on Payment Adjustment for New and Innovative Equipment and Supplies (TPNIES) program from the Centers for Medicare and Medicaid Services (CMS). This deemed Tablo a substantial clinical improvement over current home hemodialysis devices and comes with a small financial incentive for clinicians to start patients on home treatments.
Currently, the company is forecasting 100 home programs with providers by the end of 2022 and has a growing backlog for hospitals and in-home use. The market for home dialysis was just over 59,000 in 2019, so there is plenty of runway for growth for this relative newcomer.
Growing both revenues and backlog
The upstart dialysis company already has its foot in the door of major medical centers, providing inpatient dialysis services on its devices for admitted patients. With a third of the 100-largest regional healthcare systems using its dialysis machine and a growing backlog that has more than doubled over the last year, it's clear the company is headed in the right direction. Outset saw its revenue jump 106% to $102.6 million in fiscal 2021 and is projecting 38% to 46% revenue growth in 2022.
It's not just that revenue is increasing, but its fledgling home dialysis business is exploding. The company is guiding for a more-than-doubling of home revenue in 2022, representing a mid-teens percentage of total revenue. There is plenty of room to grow as the company projects the at-home dialysis market to be an $8.9 billion addressable market in the U.S. And despite its lofty growth, it remains unprofitable. However, the company believes it can profitable on a non-GAAP basis by the end of 2024.
This healthcare company checks plenty of boxes to satisfy the growth investor. The dialysis market is growing, and the home dialysis market is growing even faster. And there are multiple financial incentives to encourage the market to expand. With Tablo considered a substantial clinical improvement over its competition by CMS, there are multiple tailwinds blowing for Outset Medical.
